08:07 AM EST, 01/16/2025 (MT Newswires) -- If the Donald Trump team goes ahead with the United States 25% trade tariff on Canada, the hit to the local real gross domestic product would be 2% and the job loss would top 400,000, said Rosenberg Research.

The result -- an unemployment rate jumping an additional percentage point to nearly 8%, a level hit in each of the past six recessions, stated Rosenberg Research.

The Canadian dollar (CAD or loonie) would likely break to or through C$1.50 (67 cents U.S.) and the Bank of Canada would be compelled to cut rates at least another 100 basis points to around 2%, calculated Rosenberg.

Canada has drawn up an initial list of C$150 billion ($105 billion) of U.S.-manufactured items that it would hit with tariffs if President-elect Trump decides to levy tariffs against Canadian goods, according to an official familiar with the matter, Bloomberg is reporting.

The tariff move would be a negative for Materials, Industrials, and consumer goods to be sure, but the services side -- such as the dominant Financials space -- wouldn't be directly affected and are likely to benefit from lower funding costs and a steeper yield curve, it pointed out.

Other sectors like Telecom, REITs, and Utilities would also benefit from lower rates, and the weaker Canadian dollar would be a boon to local purveyors in the travel and tourism industry (air, rail, hotels) - and these areas command a near-50% share of the TSX, which outweighs (roughly 30%) the sectors that would be most negatively impacted by the US trade action.

Because the Canadian stock market has more value than growth and torque on the global economy as much as the domestic economy, there is only a 25% positive correlation between the TSX and GDP growth, added Rosenberg. That is half the sensitivity to local economic conditions compared with the U.S. relationship between GDP growth and the S&P 500.

The TSX is far more interest-rate sensitive -- the 50% inverse correlation with bond yields is five times more powerful compared with the U.S. And while there is no inverse relationship in the U.S. between the currency and the stock market, the more globally exposed Canadian stock market commands a 60% negative correlation to the direction of the loonie.

So, a Trump tariff is devastating for the Canadian economy, but the power of much lower interest rates and intense Canadian dollar depreciation should carry the day, according to Rosenberg. Trump is bullish for Canadian bonds by unleashing a deflationary shock to the domestic goods-producing sector, but very bullish for the local bond market and the bond proxies that are dominant in the TSX composite.